The best tech stocks are the one that are part of a rapidly expanding addressable market that allows them to grow sales and profitability at a fast rate.
We’ll take a look at three of the best Canadian tech stocks to buy in July: Shopify (TSX:SHOP)(NYSE:SHOP), Kinaxis (TSX:KXS), and Constellation Software (TSX:CSU). Those tech stocks should beat the overall market not only in 2021 but in the long term as well.
Shopify is one of the largest companies in the e-commerce world.
The tech company made waves a few weeks ago when Google’s parent company Alphabet announced its partnership with Shopify to make it easier for the latter’s merchants to register on Google properties, such as the search engine, the shopping site, the maps, and YouTube. The partnership will also make Shopify options like Shop Pay available to Google merchants, all in a bid to take on e-commerce champion Amazon.
The accelerated shift in e-commerce during the pandemic is part of an ongoing trend that should benefit Shopify and its shareholders for some time, so it’s not too late to buy Shopify stock.
Shopify reported its first-quarter 2020 results in late April, showing revenue up 110% year over year to US$988.6 million and gross merchandise volume up 114% to US$37.3 billion. Adjusted net income for the quarter was US$254.1 million compared to US$22.3 million a year earlier.
Kinaxis provides cloud-based subscription software for supply chain operations around the world. Supply chain and operations planning software has seen increasing demand in recent years. Kinaxis has propelled Canada to a leadership position in this exciting sub-sector. Investors should be looking to hold this TSX stock for the long term.
The Ottawa-based company released its first-quarter 2021 results on May 4. Total revenue increased 9% from the previous year to $57.7 million. Meanwhile, SaaS revenue jumped 19% to $40.5 million. In addition, gross margin increased 1% to $37.2 million.
This tech stock had fallen sharply from the record set in 2020 but is a good buy on the dip. Like most of the other pandemic winners, Kinaxis has a good chance of building on the progress made in 2020 and is poised for strong growth in the future. Kinaxis stock also happens to be one of the cheaper SaaS companies, with a P/S (price-to-sales) ratio lower than 20.
Many have been underestimating Constellation Software. The company has a knack for acquiring niche software companies and channeling its cash flow to other acquisitions.
Constellation’s playbook involves vertical market software companies whose products are aimed at a narrow range of applications, but whose value for these special niche markets is proven. Constellation literally buys dozens of such companies every year, seeking a high return on invested capital so that the acquired companies, usually with a great deal of autonomy under Constellation, can then bring in liquidity to fuel more mergers and acquisitions.
Constellation released its first-quarter 2021 financial results in May, showing revenue up 23% year on year to $1.176 billion and a net loss of $175 million compared to net income of $83 million a year earlier. The company completed acquisitions for total consideration of $448 million during the quarter.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Stephanie Bedard-Chateauneuf owns shares of Constellation Software. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Constellation Software, and Shopify. The Motley Fool recommends KINAXIS INC and recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $1,140 calls on Shopify, short January 2022 $1,940 calls on Amazon, and short January 2023 $1,160 calls on Shopify.